By Tatyana Labutina
MOSCOW, Jul 8 (PRIME) -- Russia’s economy may speed up to 2.1–4.0% in July–December following an expected revival of the global economy and a good grain harvest, analysts said on Monday.
“We have a low base effect of the same period last year. There are also chances of the domestic grain harvest being better. The world’s economy is expected to revive, and the situation with exports may improve by consequence,” Otkritie Bank chief analyst Vladimir Tikhomirov said.
The slowdown of Russia’s economy, whose growth fell to 3.0% and 2.1% in last two quarters of 2012, and moved down further to 1.6% in January–March, has forced President Vladimir Putin, whose approval ratings have slid during the first year of his third term, to call on the government and the central bank to take measures to reverse the downward trend again and again.
The International Monetary Fund has cut its 2013 forecast for Russia to 2.5% from 3.7%, while the Fitch rating agency has decreased its forecast to 2.2% from 3.2%.
The Economic Development Ministry expects the GDP to speed up to 2.1% in April–June, 2.5% in July–September, and 3.4% in October–December, while the total growth for 2013 will be at 2.4% compared to 3.4% in 2012. Analysts expect the GDP to grow 2.1–3.0% in 2013.
Some analysts also believe that the central bank, which some officials think keep its monetary policy too tight, may ease it by September, when the consumer price inflation slows down to help stimulate the economy.
“There are chances that the monetary policy will be eased by autumn, as the consumer price inflation may subside by this time. The consumer price inflation depends on food prices, and the grain harvest is expected to be good,” Alexei Devyatov, an analyst at Uralsib Capital, said.
The Agriculture Ministry expects Russia to harvest a bumper crop of 95.0 million tonnes of grain this agricultural year year after 70.9 million tonnes it had last year.
The government and analysts blame stagnant investments, lower energy exports, which accounts for a significant share of Russia’s GDP, and a weaker consumer demand, on the economic slowdown.
“The domestic consumer demand has slowed down. Investments have been stagnating since mid-2012, with the level of real investments being close to zero. Gas exports have been falling in Europe and Ukraine, showing no signals of any improvement yet,” Rosbank analyst Vladimir Tsibanov said.
Demand for energy resources in Europe have been falling, hit by a recession in the region and partially by a mild winter weather, while the slowdown of consumer demand followed lower household incomes, analysts said.
Capital investments into Russia’s economy decreased 0.4% in January–May, compared to a 14.0% increase in the same period of last year, and may grow only 4.6% in 2013 compared to 6.7% in 2012.
GROWTH PROSPECTS
Analysts agreed that any further growth of Russia’s economy strictly depends on the country’s investment climate, the improvement of which has been a long-declared goal of the authorities.
Tikhomirov said that the economic growth in July–December will not be fundamental, as the government has no more resources to intensify it.
“The best way out is the implementation of structural reforms and the reduction of government’s participation in the economy and state-run companies,” he said.
The investment climate could be improved if structural reforms, which mainly envisage the transition to a non-resource economy and the development of manufacturing industries, are implemented. The upgrade requires significant long-term investment, fighting corruption, political democratization, the elimination of the administrative barriers, the reform of the legal system, and the upgrade of economic management.
Being closely tied to energy exports, the economy will be weak in the long-term as a commodity cycle, which included higher commodity prices, is ending, unless the reforms are fulfilled, Andrei Kuznetsov from Sberbank CIB said.
MONETARY POLICY OF NEW CHAIRPERSON
Despite political pressure, Central Bank Chairwoman Elvira Nabiullina, who took up the post in June, may follow the monetary policy established by her predecessor Sergei Ignatyev, keeping its focus on inflation, and is unlikely to take serious measures to stimulate the economic growth, analysts said.
Nabiullina has recently said that the central bank’s instruments will not help solve Russia’s economic growth problems as they result from the absence of structural reforms and a poor investment climate. She believes in reining in inflation, which is mostly linked to non-monetary factors, to help the economy grow.
“She will not take measures to seriously stimulate the economic growth. She will continue to target inflation,” Tsibanov said.
Nabiullina said in mid-June that the bank may cut the rates in July–September, if the annual inflation, which peaked at 7.4% in May, exceeding the 2013 target range of 5.0–6.0%, goes down and the combination of other factors permits the bank to expect its further decrease.
Analysts expect the annual inflation to fall to at least 6% by August in annual terms mainly due to a high base effect. Last year, a low grain harvest and the growth of the world’s grain prices pushed food prices up and inflation rose to 0.9% in June and 1.2% in July from 0.5% in May.
This year, inflation is expected to slow down to 0.3–0.4% in June from 0.7% in May, the highest monthly level since 2008, prompted by the growth of food prices and railroad tariffs. The annual inflation is expected to slow down to 6.8% in June from 7.4% in May.
If the price rise slows down, the central bank may cut its key rates by 0.25 percentage points in August and then take a pause until September–October, some analysts said.
“Nabiullina is likely to reduce the bank’s key rates by 0.25% in August, as the annual consumer price inflation will fall to at least 6%,” Tsibanov said.
Analysts believe that the possibility of changing the bank’s monetary policy in July is low, as the month-on-month inflation will still be quite high due to the latest increase of natural monopolies prices.
“Pressure exerted by Putin is unlikely to reach such a level where Nabiullina will have to cut rates as early as July,” Devyatov said.
The central bank has kept the refinancing rate unchanged at 8.25% since September 2012.
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